251Ch4lecture5 - % Q d P % d and Revenue Summary When...

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9/6/2011 1 1 Chapter 4: Elasticity Lecture 5: Price elasticity of demand and revenue ε d < 1 and Revenue • Revenue = P x Q d • ↑ P → Revenue? • ε d < 1 → < 1 → < • Small Q d change relative to change in P • ↑ P → small ↓ Q d → ↑ Revenue • ↓ P → small ↑ Q d → ↓ Revenue %Q % d P %Q d P % ε d > 1 and Revenue • ε d > 1 → > • ↑ P → big ↓ Q d → ↓ Revenue • ↓ P → big ↑ Q d → ↑ Revenue
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Unformatted text preview: % Q d P % d and Revenue Summary When demand is inelastic, revenue follows price. When demand is elastic, revenue follows quantity demanded Graph of revenue Elasticity and revenue graph Raising price reduces revenue because quantity falls, but Raising price raises revenue because price is higher Net result depends on price elasticity of demand...
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This note was uploaded on 09/21/2011 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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